The Boeing Company [NYSE: BA] reported fourth-quarter revenue of $28.3 billion, GAAP earnings per share of $5.93 and core earnings per share (non-GAAP)* of $5.48, all company records. These results reflect record commercial deliveries, higher defense and services volume and strong performance which outweighed favorable tax impacts recorded in the fourth quarter of 2017 (Table 1). Boeing generated operating cash flow of $2.9 billion, repurchased 1.6 million shares for $0.6 billion, paid $1.0 billion of dividends and completed the acquisition of KLX.

Revenue was a record $101.1 billion for the full year reflecting higher commercial deliveries and increased volume across the company. Records for GAAP earnings per share of $17.85 and core earnings per share (non-GAAP)* of $16.01 were driven by higher volume, improved mix and solid execution.

"Across the enterprise our team delivered strong core operating performance and customer focus, driving record revenues, earnings and cash flow and further extending our global aerospace industry leadership in 2018," said Boeing Chairman, President and Chief Executive Officer Dennis Muilenburg. "Our financial performance provided a firm platform to further invest in new growth businesses, innovation and future franchise programs, as well as in our people and enabling technologies. In the last 5 years, we have invested nearly $35 billion in key strategic areas of our business, all while increasing cash returns to shareholders."

"Our One Boeing focus, clear strategies for growth, and leading positions in large and growing markets, give us confidence for continued strong performance, revenue expansion and solid execution across all three businesses, which is reflected in our 2019 guidance."

"We remain focused on executing on our production and development programs as well as our growth strategy while driving further productivity, quality and safety improvements, investing in our team and creating more value and opportunity for our customers, shareholders and employees."

Operating cash flow was $2.9 billion in the quarter and $15.3 billion for the full year, reflecting planned higher commercial airplane production rates and strong operating performance as well as timing of receipts and expenditures (Table 2). During the quarter, the company repurchased 1.6 million shares for $0.6 billion, paid $1.0 billion in dividends, and completed the acquisition of KLX. For the full year, the company repurchased 26.1 million shares for $9.0 billion and paid $3.9 billion in dividends. Based on strong cash generation and confidence in the company's outlook, the board of directors in December increased the quarterly dividend per share by 20 percent and replaced the existing share repurchase program with a new $20 billion authorization.

Table 3. Cash, Marketable Securities and Debt Balances

Quarter-End

(Billions)

Q4 18

Q3 18

Cash

$7.7

$8.0

Marketable Securities1

$0.9

$2.0

Total

$8.6

$10.0

Debt Balances:

The Boeing Company, net of intercompany loans to BCC

$11.3

$9.4

Boeing Capital, including intercompany loans

$2.5

$2.5

Total Consolidated Debt

$13.8

$11.9

1Marketable securities consists primarily of time deposits due within one year classified as "short-term investments."

Cash and investments in marketable securities totaled $8.6 billion, compared to $10.0 billion at the beginning of the quarter (Table 3). Debt was $13.8 billion, up from $11.9 billion at the beginning of the quarter primarily due to the issuance of new debt following the KLX acquisition.

Total company backlog at quarter-end was relatively unchanged at $490 billion and included net orders for the quarter of $27 billion.

During the quarter, Commercial Airplanes delivered 238 airplanes, including the delivery of the 787th 787 Dreamliner and the first 737 MAX Boeing Business Jet. The 737 program delivered 111 MAX airplanes in the fourth quarter, including the first MAX delivery from the China Completion Center, and delivered 256 MAX airplanes in 2018. The first 777X flight test airplane completed final body join and power-on, and the program remains on track for flight testing this year and first delivery in 2020.

During the quarter, Defense, Space & Security was awarded contracts for the second KC-46 Tanker to Japan, a joint ground system to provide tactical satellite communications for the U.S. Air Force and to modernize 17 Chinooks for Spain. Defense, Space & Security also completed a successful test for the U.S. Air Force's Minuteman III and unveiled the SB>1 DEFIANT helicopter for the U.S. Army. In January, the first two KC-46 Tankers were delivered to the U.S. Air Force.

Backlog at Defense, Space & Security was $57 billion, of which 30 percent represents orders from customers outside the U.S.

During the quarter, Global Services was awarded Performance Based Logistics contracts for C-17 and F-22 for the U.S. Air Force and F-15 for Qatar as well as contracts for F/A-18 services for the U.S Navy. Global Services was also selected by Shenzhen Airlines to provide crew management solutions, making them the first airline in China to utilize Boeing AnalytX-powered services. Significant milestones during the quarter included the first KC-46 training flight with the U.S. Air Force. In addition, Global Services successfully began integrating KLX and began operations of the Auxiliary Power Unit joint venture with Safran.

Additional Financial Information

Table 7. Additional Financial Information

Fourth Quarter

Full Year

(Dollars in Millions)

2018

2017

2018

2017

Revenues

Boeing Capital

$60

$73

$274

$307

Unallocated items, eliminations and other

($30)

$255

($75)

$542

Earnings from Operations

Boeing Capital

$8

$27

$79

$114

FAS/CAS service cost adjustment

$308

$389

$1,327

$1,438

Other unallocated items and eliminations

($246)

($328)

($1,414)

($1,099)

Other income, net

$29

$32

$92

$123

Interest and debt expense

($158)

($93)

($475)

($360)

Effective tax rate

15.4%

(13.8)%

9.9%

16.3%

At quarter-end, Boeing Capital's net portfolio balance was $2.8 billion. Revenue in other unallocated items and eliminations decreased primarily due to the timing of eliminations for intercompany aircraft deliveries and the 2017 sale of aircraft previously leased to customers. The change in earnings from other unallocated items and eliminations is primarily due to timing of expense allocations. The effective tax rate for the fourth quarter increased from the same period in the prior year primarily due to the favorable impacts from the enactment of the Tax Cuts and Jobs Act recorded in the fourth quarter of 2017.

Outlook

Effective in the first quarter of 2019, the Company is making a change to the accounting for military derivative aircraft. Revenues and costs associated with military derivative aircraft were previously reported in the Commercial Airplanes and Defense, Space & Security segments. Beginning in 2019, all revenues and costs associated with military derivative aircraft will be reported in the Defense, Space & Security segment. An additional exhibit is included on page 15 with restated 2018 results adjusted for the change in accounting for military derivative aircraft as well as the realignment of certain programs between Global Services and Defense, Space & Security. The Company has provided this comparable information in the exhibit and below to help investors understand the 2019 financial outlook (Table 8).

1 Continues to include intercompany deliveries related to military derivative aircraft

2 Approximately $1.1 billion of pension expense is expected to be allocated to the business segments

Non-GAAP Measures Disclosures

We supplement the reporting of our financial information determined under Generally Accepted Accounting Principles in the United States of America (GAAP) with certain non-GAAP financial information. The non-GAAP financial information presented excludes certain significant items that may not be indicative of, or are unrelated to, results from our ongoing business operations. We believe that these non-GAAP measures provide investors with additional insight into the company's ongoing business performance. These non-GAAP measures should not be considered in isolation or as a substitute for the related GAAP measures, and other companies may define such measures differently. We encourage investors to review our financial statements and publicly-filed reports in their entirety and not to rely on any single financial measure. The following definitions are provided:

Core operating earnings is defined as GAAP earnings from operations excluding the FAS/CAS service cost adjustment. The FAS/CAS service cost adjustment represents the difference between the FAS pension and postretirement service costs calculated under GAAP and costs allocated to the business segments. Core operating margin is defined as core operating earnings expressed as a percentage of revenue. Core earnings per share is defined as GAAP diluted earnings per share excluding the net earnings per share impact of the FAS/CAS service cost adjustment and Non-operating pension and postretirement expenses. Non-operating pension and postretirement expenses represent the components of net periodic benefit costs other than service cost. Pension costs, comprising service and prior service costs computed in accordance with GAAP are allocated to Commercial Airplanes and BGS businesses supporting commercial customers. Pension costs allocated to BDS and BGS businesses supporting government customers are computed in accordance with U.S. Government Cost Accounting Standards (CAS), which employ different actuarial assumptions and accounting conventions than GAAP. CAS costs are allocable to government contracts. Other postretirement benefit costs are allocated to all business segments based on CAS, which is generally based on benefits paid. Management uses core operating earnings, core operating margin and core earnings/per share for purposes of evaluating and forecasting underlying business performance. Management believes these core earnings measures provide investors additional insights into operational performance as they exclude non-service pension and post-retirement costs, which primarily represent costs driven by market factors and costs not allocable to government contracts. A reconciliation between the GAAP and non-GAAP measures is provided on pages 13-14.

Free Cash Flow

Free cash flow is defined as GAAP operating cash flow without capital expenditures for property, plant and equipment additions. Management believes free cash flow provides investors with an important perspective on the cash available for shareholders, debt repayment, and acquisitions after making the capital investments required to support ongoing business operations and long term value creation. Free cash flow does not represent the residual cash flow available for discretionary expenditures as it excludes certain mandatory expenditures such as repayment of maturing debt. Management uses free cash flow as a measure to assess both business performance and overall liquidity. Table 2 provides a reconciliation between GAAP operating cash flow and free cash flow.

Caution Concerning Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Words such as "may," "should," "expects," "intends," "projects," "plans," "believes," "estimates," "targets," "anticipates," and similar expressions generally identify these forward-looking statements. Examples of forward-looking statements include statements relating to our future financial condition and operating results, as well as any other statement that does not directly relate to any historical or current fact. Forward-looking statements are based on expectations and assumptions that we believe to be reasonable when made, but that may not prove to be accurate. These statements are not guarantees and are subject to risks, uncertainties, and changes in circumstances that are difficult to predict. Many factors could cause actual results to differ materially and adversely from these forward-looking statements. Among these factors are risks related to: (1) general conditions in the economy and our industry, including those due to regulatory changes; (2) our reliance on our commercial airline customers; (3) the overall health of our aircraft production system, planned commercial aircraft production rate changes, our commercial development and derivative aircraft programs, and our aircraft being subject to stringent performance and reliability standards; (4) changing budget and appropriation levels and acquisition priorities of the U.S. government; (5) our dependence on U.S. government contracts; (6) our reliance on fixed-price contracts; (7) our reliance on cost-type contracts; (8) uncertainties concerning contracts that include in-orbit incentive payments; (9) our dependence on our subcontractors and suppliers, as well as the availability of raw materials; (10) changes in accounting estimates; (11) changes in the competitive landscape in our markets; (12) our non-U.S. operations, including sales to non-U.S. customers; (13) threats to the security of our or our customers' information; (14) potential adverse developments in new or pending litigation and/or government investigations; (15) customer and aircraft concentration in our customer financing portfolio; (16) changes in our ability to obtain debt on commercially reasonable terms and at competitive rates; (17) realizing the anticipated benefits of mergers, acquisitions, joint ventures/strategic alliances or divestitures; (18) the adequacy of our insurance coverage to cover significant risk exposures; (19) potential business disruptions, including those related to physical security threats, information technology or cyber-attacks, epidemics, sanctions or natural disasters; (20) work stoppages or other labor disruptions; (21) substantial pension and other postretirement benefit obligations; (22) potential environmental liabilities.

Additional information concerning these and other factors can be found in our filings with the Securities and Exchange Commission, including our most recent Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K. Any forward-looking statement speaks only as of the date on which it is made, and we assume no obligation to update or revise any forward-looking statement, whether as a result of new information, future events, or otherwise, except as required by law.

Note: Aircraft accounted for as revenues by BCA and as a note receivable in consolidation identified by parentheses

Defense, Space & Security

AH-64 Apache (New)

—

11

—

3

AH-64 Apache (Remanufactured)

23

57

11

14

CH-47 Chinook (New)

13

9

2

3

CH-47 Chinook (Renewed)

17

35

3

7

F-15 Models

10

16

2

5

F/A-18 Models

17

23

7

5

P-8 Models

16

19

6

5

Commercial and Civil Satellites

1

3

—

—

Military Satellites

1

1

1

1

Total backlog (Dollars in millions)

December 31

2018

December 31

2017

Commercial Airplanes

$412,307

$410,986

Defense, Space & Security

57,166

44,049

Global Services

21,008

19,605

Total backlog

$490,481

$474,640

Contractual backlog

$462,070

$456,984

Unobligated backlog

28,411

17,656

Total backlog

$490,481

$474,640

The Boeing Company and Subsidiaries

Reconciliation of Non-GAAP Measures

(Unaudited)

The tables provided below reconcile the non-GAAP financial measures core operating earnings, core operating margin, and core earnings per share with the most directly comparable GAAP financial measures, earnings from operations, operating margin, and diluted earnings per share. See page 6 of this release for additional information on the use of these non-GAAP financial measures.

(Dollars in millions, except per share data)

Fourth Quarter 2018

Fourth Quarter 2017

$ millions

Per Share

$ millions

Per Share

Revenues

28,341

24,770

Earnings from operations (GAAP)

4,175

2,978

Operating margins

14.7%

12.0%

FAS/CAS service cost adjustment:

Pension FAS/CAS service cost adjustment

(225)

(316)

Postretirement FAS/CAS service cost adjustment

(83)

(73)

FAS/CAS service cost adjustment

(308)

(389)

Core operating earnings (non-GAAP)

$3,867

$2,589

Core operating margins (non-GAAP)

13.6%

10.5%

Diluted earnings per share (GAAP)

$5.93

$5.49

Pension FAS/CAS service cost adjustment

($225)

(0.39)

($316)

(0.52)

Postretirement FAS/CAS service cost adjustment

(83)

(0.14)

(73)

(0.12)

Non-operating pension expense

(45)

(0.08)

(29)

(0.05)

Non-operating postretirement expense

24

0.04

32

0.05

Provision for deferred income taxes on adjustments 1

69

0.12

135

0.22

Subtotal of adjustments

($260)

($0.45)

($251)

($0.42)

Core earnings per share (non-GAAP)

$5.48

$5.07

Weighted average diluted shares (in millions)

577.5

605.1

1 The income tax impact is calculated using the U.S. corporate statutory tax rate.

The Boeing Company and Subsidiaries

Reconciliation of Non-GAAP Measures

(Unaudited)

The tables provided below reconcile the non-GAAP financial measures core operating earnings, core operating margin, and core earnings per share with the most directly comparable GAAP financial measures, earnings from operations, operating margin, and diluted earnings per share. See page 6 of this release for additional information on the use of these non-GAAP financial measures.

(Dollars in millions, except per share data)

2019 Guidance

Full Year 2018

Full Year 2017

$ millions

Per Share

$ millions

Per Share

$ millions

Per Share

Revenues

101,127

94,005

Earnings from operations (GAAP)

11,987

10,344

Operating margins

11.9%

11.0%

FAS/CAS service cost adjustment:

Pension FAS/CAS service cost adjustment

(1,005)

(1,127)

Postretirement FAS/CAS service cost adjustment

(322)

(311)

FAS/CAS service cost adjustment

~($1,335)

(1,327)

(1,438)

Core operating earnings (non-GAAP)

$10,660

$8,906

Core operating margins (non-GAAP)

10.5%

9.5%

Diluted earnings per share (GAAP)

$21.90 - 22.10

$17.85

$13.85

Pension FAS/CAS service cost adjustment

~($1,335)

($1,005)

(1.71)

($1,127)

(1.84)

Postretirement FAS/CAS service cost adjustment

(322)

(0.55)

(311)

(0.51)

Non-operating pension expense

~($90)

(143)

(0.24)

(117)

(0.19)

Non-operating postretirement expense

101

0.17

123

0.20

Provision for deferred income taxes on adjustments 1

287

0.49

501

0.82

Subtotal of adjustments

($2.00)

($1,082)

($1.84)

($931)

($1.52)

Core earnings per share (non-GAAP)

$19.90 - 20.10

$16.01

$12.33

Weighted average diluted shares (in millions)

560 - 565

586.2

610.7

1 The income tax impact is calculated using the U.S. corporate statutory tax rate.

The Boeing Company and Subsidiaries

Summary of Business Segment Data - Restated

(Unaudited)

The restated amounts below reflect the change in accounting for military derivative aircraft as well as the realignment of certain programs between Global Services and Defense, Space & Security.